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Sector Connect – The Healthcare Industry

doctor tools This article is the first in a series of articles that would explore the Healthcare Industry. We’ll start off here by first looking at what makes the industry tick. Subsequent articles would then be taking a look at some of the companies and more that fall under the sectors and subsectors that make up the Healthcare Industry.

According to the Industrial Classification Benchmark (ICB), the Healthcare Industry can be divided into two sectors: the Health Care Equipment & Services; and Pharmaceuticals & Biotechnology. These sectors in turn can be divided further into subsectors.

The former has three subsectors: Health Care Providers; Medical Equipment; and Medical Suppliers. The latter consists of two subsectors: Biotechnology; and Pharmaceuticals.

Returning to the Healthcare Industry, it is a resilient one. Even during a recession, someone who falls sick has to go and visit a doctor to get cured. Unlike some of the other industries, the Healthcare Industry satisfies a “need” instead of a “want”.  The industry is also perhaps a point of pride in Singapore, as she prides herself as having the “world’s 4th best healthcare infrastructure (World Competitiveness Yearbook 2010, IMD) while spending less than 4% of GDP on healthcare and providing universal coverage for Singaporeans with multiple layers of care.” According to the ICB, there are a total of 23 companies in our local stock exchange that can be classified under the Healthcare Industry

The various companies and market capitalisation (as of 7th August 2013) can be found in the table below:

intro to healthcare

(Source: SGX My Gateway and Writer’s input)

From 2008 to 2012, the FTSE ST Health Care Index (SGX: FSTAS4000) has returned 35.76% more than the Straits Times Index (SGX: ^STI). Even though the FTSE ST Health Care Index does not constitute all of the stocks showcased above, it gives a good proxy to the health care industry in SGX.

Catalysts

With the burgeoning ageing population, there will be an increased demand for the health care providers. The percentage of residents 65 and above out of the overall population has been increasing consistently from 6.0% in 1990 to 9.9% in 2012, and is expected to continue to increase.

Increasing medical tourism into Singapore also bodes well for this industry. Singapore boasts a team of high standard medical expertise and the cost is still relatively cheaper than United States or Europe. The local hospitals are also well equipped with state of the art facilities.

Risks

One of the major risks impacting this industry currently is rising costs. In March 2012, Ministry of Health revealed the “Healthcare 2020 Masterplan” and it said doctors will see an increase of around 20% to their total pay by 2014. Dentists, pharmacists, nurses, allied health professions and associate consultants in hospitals will also see pay increases.

Foolish Bottomline

Investing in the health care industry is attractive due to its resilient nature. The silver tsunami and the increase in medical tourists bodes well for the health care providers. However, investors also have to be mindful of the risks like rising costs as well.

You can read the other three articles in this series herehere, and here.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.